Correlation Between Chatham Rock and Gen III

Can any of the company-specific risk be diversified away by investing in both Chatham Rock and Gen III at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Chatham Rock and Gen III into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chatham Rock Phosphate and Gen III Oil, you can compare the effects of market volatilities on Chatham Rock and Gen III and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Chatham Rock with a short position of Gen III. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chatham Rock and Gen III.

Diversification Opportunities for Chatham Rock and Gen III

-0.01

Correlation Coefficient

Chatham Rock  Gen III

Good diversification

The 3 months correlation between Chatham and Gen is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Chatham Rock Phosphate and Gen III Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gen III Oil and Chatham Rock is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Chatham Rock Phosphate are associated (or correlated) with Gen III. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gen III Oil has no effect on the direction of Chatham Rock i.e., Chatham Rock and Gen III go up and down completely randomly.

Pair Corralation between Chatham Rock and Gen III

Assuming the 90 days horizon Chatham Rock is expected to generate 1.38 times less return on investment than Gen III. In addition to that, Chatham Rock is 2.19 times more volatile than Gen III Oil. It trades about 0.07 of its total potential returns per unit of risk. Gen III Oil is currently generating about 0.21 per unit of volatility. If you would invest  19.00  in Gen III Oil on October 20, 2024 and sell it today you would earn a total of  21.00  from holding Gen III Oil or generate 110.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Chatham Rock Phosphate  vs.  Gen III Oil

Chatham Rock Phosphate

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Rock Phosphate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chatham Rock showed solid returns over the last few months and may actually be approaching a breakup point.

Gen III Oil

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gen III Oil are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal forward indicators, Gen III showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chatham Rock and Gen III

The main advantage of trading using opposite Chatham Rock and Gen III positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chatham Rock position performs unexpectedly, Gen III can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Gen III will offset losses from the drop in Gen III's long position.

The idea behind Chatham Rock Phosphate and Gen III Oil pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.